I. MISSING OR IMPROPER SIGNATURE OF DRAWER
There are two simple rules regarding the missing or improper signature of a drawer of a check. These rules are:
1. The bank cannot supply the signature of the drawer; and
2. A bank is under the obligation to refuse to pay when a drawer’s signature is missing and the bank is justified in refusing to pay if an improper signature is used (NOTE: the bank should make known its reasons for not honoring the check in such instances).
II. SUPPOSE TWO SIGNATURES ARE REQUIRED ON A CHECKING ACCOUNT – ONE IS MISSING. WILL BANK BE LIABLE FOR PROCESSING ERROR?
Yes, unless the missing signature is ratified (approved by the other party or the other party receives a material benefit). If not ratified, it is treated as an instrument with an unauthorized signature and not effective.
U.C.C. § 3-403(b) provides that if the signature of more than one person is required to constitute the authorized signature of an organization, the signature of the organization is unauthorized if one of the required signatures is lacking. Section 3-403 states that unless otherwise provided in Articles 3 or 4 of the UCC, an unauthorized signature is ineffective except as the signature of the unauthorized signer in favor of a person who in good faith either pays the instrument or takes it for value. However, an unauthorized signature may be ratified.
For example, if an organization’s account requires the signatures of Mary Doe and John Doe on each check and only one signs, it is an unauthorized signature and is ineffective except as the signature of the unauthorized signer. If Mary Doe signed the check, the check cannot be enforced against the organization’s account, but it could be enforced against Mary Doe. Likewise, if Sally Smith signed a check on John Doe’s account her signature would be deemed an unauthorized signature (assuming she was not on the account) and would not be binding on John or his account. It would, however, be binding upon Sally Smith and could be enforced against her by a person who, in good faith, has paid the instrument or taken it for value. Because most banks do not examine checks under a certain dollar amount, organization accounts on which more than one signature is required should be carefully reviewed and appropriate controls should be put into place to reduce the risk of liability.
Banks may encounter situations in which its customer requests that all checks, or all checks above a certain dollar amount require two signatures. In addition, with customers able to obtain checks from other sources, they may begin to issue checks with “two party signature requirements” without notifying the bank. To minimize liability under such circumstances, a bank may want to put protective language into its deposit card agreement along the lines of the following:
Alternative A:
MULTIPLE REQUIRED SIGNATURE ACCOUNTS
If you (a) have specified that some or all checks must be signed by more than one person, (b) have specified that the authorized signers for checks in one category are different than those for another check category, or (c) utilize checks that require multiple signatures, you acknowledge that terms and restrictions are for your internal use only and do not bind the bank, even if you have made the bank aware of them in a certificate of authority or otherwise. The bank reserves the right to refuse to allow persons to open accounts with these types of restrictions. You agree not to assert any lack of authorized signers on any check as long as it contains the signature of at least one individual who is an authorized signer for your account.
Alternative B:
The bank will not assume any responsibility to confirm that two or more (or any combination of) authorized signers have approved any check, item or transaction, except and unless we have expressly agreed to assume such responsibility. Any agreement by the bank to confirm that two or more (or any combination of) authorized signers have approved any check, item or transaction (check, item, transaction being collectively referred to herein as “transaction”), will be subject to the following conditions and limitations: (a) the bank must expressly agree to provide this additional service; (b) you must use checks that have the required number of signature lines and bear a legend above the signature lines stating the number of signatures that are required; (c) the bank reserves the right to limit its review of transactions to only certain transactions; (d) maximum liability of the bank for any transaction that does not have the proper multiple signatures/approvals will be the lesser of either (1) the amount of the transaction or (2) $25, subject in every case to your providing the bank with sufficient evidence of loss, and provided that neither you nor any third party has contributed to causing the loss; (e) in lieu of original written signatures the bank may accept approvals based on verbal, electronic, facsimile or other forms of communication, without having to verify the source, and shall not be reliable for relying on such communication; and (f) the bank reserves the right to charge for this service, change or discontinue this service at any time upon sending a notification to you at your last known address in the bank records. Any separate written agreement that the bank may enter into regarding its confirming multiple signatures/approvals, will automatically incorporate the foregoing conditions and limitations and be subject to such other or further terms and conditions as the bank may impose